Insurance Pricing and Increased Limits Ratemaking By Proportional Hazards Transforms

This paper proposes a new premium principle, where risk loadings are imposed by a proportional decrease in the hazard rates. This premium principle is scale invariant and additive for layers. It is shown that this principle will generate stop-loss contracts as optimal reinsurance arrangements in a competitive market when the reinsurer is less risk-averse than the direct insurer. Finally, increased limits factors are calculated based on this principle. Author Keywords: Risk-averse; Premium principle; Proportional hazards transform; Optimal reinsurance; Increased limits factors